This spidergram / flow chart has taken various inputs and assumptions (reasonably conservative ones) to determine the probability of the breakup of the Euro.

Chances of the Euro collapse

And, according to well known investment banker Mark Carnegie of Lazard Australian Private Equity, Europe has three choices in his Mark-2-Market column, and it is worth quoting at length:

“Events can unfold in three broad ways that I call: ‘Plan A’, ‘Plan B’, and ‘Plan C’. Under Plan A, Europe can head south and be Germany in 1920s, or if it chooses Plan B it can head north and be the United States in the 1930s, or if it is fortunate and clever it could opt for Plan C and be Britain in the 1970s. So how do I see things unfolding in Europe.

“Europe the process of people motivated to escape poverty by working hard has stalled. The miracle of post-war reconstruction and the Marshall Plan that gave Europeans the good life by working cohesively in the 30 years after the horror of World War II and under the shadow of communism is finished. The sense of joyous unification, felt across Europe when the Berlin Wall came down, is now a distant memory”

“The core European countries are rich and they had a laudable plan when they formed the union – two world wars and the nuclear arms race of the Cold War gave them plenty of motivation to make it work. But the problem with Europe is not that the goals are not noble. The problem is that the union just hasn’t worked in the economic sphere and now the risk is that the other goals the union sought to achieve will be put at risk by the economic failure.”

“No matter how hard I try I cannot find enough evidence to support the contention that the $US1 trillion plan for Europe and the rhetoric from politicians and bureaucrats that they have resolved the issues of the peripheral nations has any support from the facts”

“The economic contradictions at the heart of the European dream that were revealed by the crisis of Greece have not been resolved they have been papered over by a very thin layer of coordination held on by the glue of panic. Despite wanting a good-news version for this column, all I see for Europe is gloom in the near future. However, the truth is the truth and there is no point in lying to yourself let alone writing about it.”

The problem is simply that some of the countries cannot live without periodic devaluations and debt crises. This is because their political and social circumstances do not allow them to exercise enough financial discipline to keep a strong currency and keep the money supply under control. Those countries are now chained together with a group of disciplined and powerful countries by the euro despite the two groups that make up the union constantly pulling in opposite directions. One group heads south on loose money one north on prudence and discipline. They cannot stay together.